Sen. Franken to Comcast, NBC execs: merger no laughing matter

Pretty much everything about cable, video, and the Internet came up at …

Comcast and NBC Universal didn't get a whole lot of love at Thursday's emotional Senate and House hearings on their proposed merger. But company representatives did get plenty of questions. At the Senate Judiciary Committee hearing, Wisconsin Democrat Herb Kohl cracked no smiles as he ran through four "principal areas of concern" about the deal: potential programming price hikes, loss of free over-the-air TV content, hobbling independent programmers, and weakening Internet TV.

"It is essential that you explain to us and the American public how the creation of this media conglomerate will serve the interests of the American people, not just the interests of your companies," Kohl grimly demanded of Comcast CEO Brian Roberts and NBCU President Jeff Zucker as they prepared to make their case.

Meanwhile, at the House Commerce Committee's subcommittee on the Internet, Mark Cooper of the Consumer Federation of America told Representatives that the merger "has so many anticompetitive, anticonsumer, and antisocial effects that it cannot be fixed. Comcast’s claim that FCC oversight will protect the public is absurd."

It's murder

Even Sen. Orin Hatch (R-UT) confessed some concern about the marriage. He called worries about the union "justified" in light of rising cable rates that are "difficult to understand." But it was the faux pas in his opening statement that suggested how nervous everyone is about this deal.

"In other words," Franken continued irately, "looking to get approval for this merger, you sat there in my office and told me to my face that these rules would protect consumers, but your lawyers had just finished arguing in front of the Commission that it would be unconstitutional to apply these rules."

"Both of these countries, er, companies are iconic in their industries," Hatch began. And later: "While horizontal murders, uh, mergers, tend to receive more criticism and scrutiny, vertical mergers" can also result in "a significant foreclosure of competition," he warned.

Roberts and Zucker argued that this particular killing is primarily vertical—a union of Comcast's huge network power with NBCU's popular content (presumably they would consider a merger of Comcast with Time Warner Cable to be horizontal). But both execs insisted that its impact will be benign at worst, positive at best, and chock full of public interest goodies to boot.

Comcast is promising, for example, to preserve NBC's over-the-air video fare, albeit while moving towards a terrestrial TV business model that "can be workable in the evolving economic and technological environment" (we leave it to Ars readers to parse that caveat).

Plus, the companies promised, the deal will allow the cable giant to invest more in NBCU programming. "In the end, the proposed transaction simply transfers ownership and control of NBCU from GE," they explained, "a company with a very diverse portfolio of interests, to Comcast, a company with an exclusive focus on, and a commitment to investing its resources in, its communications, entertainment, and information assets."

I was there

But before Roberts and Zucker made their pitch, an ex-television star was giving the plan raspberries. "I worked for years for NBC," noted former Saturday Night Live cast member and now Senator Al Franken (D-MN) in his opening remarks. "I really feel I owe a lot to NBC, but what I know from my previous career has given me reason to be concerned... very concerned" about the merger.

Franken recalled that back in the 1980s, the television networks urged the FCC to drop its Financial Interest and Syndication (FYN-SYN) rules, which barred networks from owning all but a small chunk of the programming that they aired—which the agency did. The senator recalled that, at the time, NBC executives promised that relaxing FYN-SYN would not lead the network to favor its own content.

"But by 1992 NBC was the single largest supplier of its own primetime programming," Franken continued. "Today, if an independent producer wants to get its own show on NBC's schedule, on any network's schedule, it is routine practice, and you guys know it, for the network to demand at least part ownership of the show... And that's just a fact. So while I commend NBCU and Comcast for making voluntary commitments as part of this merger, you'll have to excuse me if I don't trust these promises."

What you said

Later on in the hearing, Franken disclosed that Comcast's Roberts had met with him days earlier, claiming that the FCC's program carriage rules would protect consumers. "You said that those rules will make sure that you always have a wide variety of programs because they forbid you [NBC] from discriminating against other company's programs."

With that, Franken pointed to a large sign board behind him with a quote from Comcast in its recent battle with the NFL Network over which tier on Comcast would carry the sports channel.

"The Commission is simply not equipped or constitutionally empowered to make an independent assessment of the myriad, complex, and dynamic considerations that affect carriage, tiering, and pricing decisions," said the quote from Comcast attorneys. "Thus the First Amendment requires that the Commission exercise extreme caution before interfering with any carriage decision."

"In other words," Franken continued irately, "looking to get approval for this merger, you sat there in my office and told me to my face that these rules would protect consumers but your lawyers had just finished arguing in front of the Commission that it would be unconstitutional to apply these rules."

Roberts looked a little offended by Franken's comments. "When we met, perhaps I was confused. I thought that we were talking about program access, now you are talking about program carriage," he explained—the latter category deals with where programs will appear on a cable distribution system after they have been granted access.

"Whether it's program access or program carriage, did you not say that this rule protects the people of Minnesota?" Franken declared, then asked NBC's Zucker about those FYN-SYN questions. "I think my characterization was pretty accurate, don't you?"

Zucker paused. "It's a long time ago and I think there's a lot of factors that went into back then..."

"C'mon," Franken interrupted. "You guys said: 'We're in the business of ratings! Why would we favor our own programming'?"

"I can tell you what's happening today," Zucker pressed on. "NBC has just ordered 20 pilots for new shows..."

"I think what you did was put an NBC-produced show [the now-canceled Jay Leno Show] on at ten o'clock for five nights a week is what I think you did," Franken retorted.

New horizons

Meanwhile, at both the House and Senate hearings, Mark Cooper challenged the notion that the Comcast NBCU merger was just a vertical affair. In fact, both companies have stakes in the Internet TV market, he noted—NBC with its share in Hulu.com, and Comcast with Fancast.net and its TV Everywhere initiative. The latter will allow Comcast cable video customers to access Comcast fare online.

"Comcast is clearly attempting to control the distribution of the video content it makes available on the Web by restricting sales exclusively to Comcast cable customers," Cooper charged, in that the content is not available to non-Comcast subscribers.

"By contrast, NBC has exactly the opposite philosophy—or at least it did," he warned. "Through Hulu, NBC is competing for both Comcast and non-Comcast customers by selling video online that is not tied to cable. NBC also has incentives to make its programming available in as many points of sale as possible. Merger with Comcast will put an end that pro-competitive practice."

NBCU holds "approximately a 32 percent, noncontrolling, nonmanagement interest in Hulu," Comcast and NBCU disclosed in a statement to the FCC on the proposed merger.

Don't Boxee me in

Speaking of Hulu, at the House Committee hearing, Representative Rick Boucher asked NBC's Zucker about the Boxee Incident. As we've reported, last February Hulu told the media viewing software company to remove Hulu content from its browser app.

"This was a decision made by the Hulu management," Zucker replied. "What Boxee was doing was illegally taking the content that was on Hulu without any business deal. And, you know, we have several distributors, actually many distributors of the Hulu content that we have legal distribution deals with so we don't preclude distribution deals. What we preclude are those who illegally take that content."

Boxee's Avner Ronen quickly responded to this assertion his blog. "We don't 'take' the video," Ronen wrote. "We don't copy it. We don't put ads on top of it. The video and the ads play like they do on other browsers or on Hulu Desktop. And it certainly is legal to do so."

As for Zucker's claim that this decision was made by Hulu management, here's what Hulu CEO Jason Kilar wrote on his blog last year shortly after the move.

"Our content providers requested that we turn off access to our content via the Boxee product, and we are respecting their wishes," he explained. "While we stubbornly believe in this brave new world of media convergence—bumps and all—we are also steadfast in our belief that the best way to achieve our ambitious, never-ending mission of making media easier for users is to work hand in hand with content owners."

Clearly there are a lot of stakeholders in this proposed wedding. Fortunately for Comcast and NBCU, their betrothal is not subject to ratification by the Senate and House of Representatives; the Department of Justice and FCC will review the deal. But after Thursday's hearings, there's no doubt that Capitol Hill is watching this engagement very closely.

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.